India’s largest luxury car maker Mercedes-Benz India Pvt. Ltd has called for tax breaks for the automobile industry to build a sustainable business model for electric vehicles in the country.

In an interview, managing director and chief executive Roland Folger said his company would like to manufacture electric vehicles in India once it crosses sales of more than 400 such units a year in India. Mercedes boasts of being India’s only luxury vehicle maker with more than 60% localisation.

A critic of the present government’s “arbitrary” tax policy on the luxury segment, Folger also called for tax breaks on EVs imported through the CBU (completely built unit) route to make for a “sustainable business case”.

“We need to wait for government policy to see how the pricing of our EVs works out. The government should consider tax breaks to CBUs for one to two years,” Folger said.

If the maker of the E-Class sedan chooses to import EVs into the country, the cars will belong to the parent Mercedes-Benz’s EQ brand, which was unveiled at the Paris Motor Show in October 2016. At present, the parent company is developing nine electric cars for the global markets, Folger added. The German company is also waiting for a stable government stance on taxation of hybrid vehicles “though plug-in hybrids are a meaningful alternative to EVs”.

However, an analyst said it would be futile to expect tax breaks given the low commercial viability of luxury EVs at the moment.

“Luxury EVs are like fighter aircraft; India can’t make them and importing them is very costly. The EV technology is difficult for a country like India to accept, so it does not make sense for a government to subsidise a product which won’t see much demand in the first place”, said Deepesh Rathore, co-founder and director at London-based consulting firm Emerging Markets Automotive Advisors.

Globally, the cost of EVs must come down to be able to import them, he added.

Meanwhile, Folger admitted that sales for 2017 “did not see a negative surprise though they could have been better if not for the cess hike in September”. From January to September, Mercedes-Benz India sold 11,869 units, a 19.59% jump over the corresponding period in 2016.

Separately, speaking on the sidelines of a dealership inauguration in the Thane district of Maharashtra, Folger said a distribution network expansion is on the cards as the company has decided on a few tier-2 and tier-3 cities to expand its reach, without mentioning specifics.

At present, Mercedes has 92 dealerships in 45 cities.

For 2018, Folger expects Mercedes-Benz India and the luxury car segment in India to grow by the double digits “save for external events”, on the back of higher disposable incomes and newer players such as Kia Motors and Genesis entering the market.